Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question #6: Austin Widgets, Inc. has received a special order for 2,000 units of its product at a special price of $75. The product normally
Question #6: Austin Widgets, Inc. has received a special order for 2,000 units of its product at a special price of $75. The product normally sells for $100 and has the following manufacturing costs: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Per unit $30 20 15 25 90 Unit cost Assume that Austin Widgets has sufficient capacity to fill the order without harming normal production and sales a. If Austin Widgets accepts the order, what effect will the order have on the company's short- term profit? Give the dollar amount of increase or decrease-and show calculations b. What minimum price should Austin Widgets charge to achieve a $25,000 incremental profit? Show calculations. c. Now assume Austin Widgets is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Austin Widgets accepts the order, what effect will the order have on the company's short-term profit? Give the dollar amount of increase or decrease- and show calculations HINT: If the company has sufficient capacity, short term profit will equal incremental revenues minus incremental (variable) costs. The minimum price charged should therefore equal incremental variable costs plus any desired profit. If the company does not have sufficient capacity, the effect on short-term profit will equal incremental proft from the special order minus the profit that would have been earned from regular sales given up
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started